Bills come due on new Quincy High School

Monday

Jan 31, 2011 at 12:01 AMJan 31, 2011 at 3:55 AM

This year Quincy will begin almost three decades’ worth of payments on bonds it needs to cover its $54.5 million portion of the school’s $126 million price tag. The state financed the rest of the construction.

Jack Encarnacao

Halfway through its first year, the new Quincy High School’s hallways are bustling with students. The classrooms are fully stocked. The cafeteria is churning out meals. The political rhetoric about its construction is history.

Now it’s time to pay for the school.

This year the city will begin almost three decades’ worth of payments on bonds it needs to cover its $54.5 million portion of the school’s $126 million price tag. The state financed the rest of the construction.

Janney Montgomery Scott LLC, a Philadelphia-based investment bank, placed the winning bid last week to buy $16 million in city bonds for the high school. The city will pay back the money at 4.8 percent interest over the next 28 years.

In addition, the city is paying for the school with a $15 million loan from the state School Building Authority, which is secured at 2 percent interest and pays down annually. The rest of the city’s costs on the school will be bonded out in July.

“We’re about where we expected to be,” said Nicholas Puleo, Quincy’s chief financial officer. “We’re keeping the payments as stable as we possibly can.”

The first payment to Janney Montgomery Scott – $23,000 in principal and $680,000 in interest – is due Dec. 1. The final payment of $945,000 in principal and $25,000 in interest is due in 2038.

Puleo said the rates are favorable, but that the city will be trying to restructure its biannual payments on the bond to spread out a forthcoming spike in payments.

According to the current schedule, Quincy will see its required payment on the high school bond increase from $400,000 in 2013 to $1 million three years later.

“We’re working to smooth out the spike,” Puleo said.

How the city handles the high school debt will have a big effect on its financial condition for years to come and could prompt it to raise taxes significantly if the bleak economy doesn’t recover soon.

Until this year, the city’s spending on the Quincy High School project took up less than 1 percent of the its debt service budget. The city has only paid interest on short-term financing for the school thus far.

But in four years, after long-term financing and principal payments kick in, spending on Quincy High School debt is projected to grow to 33 percent of the debt service budget.

A key issue for the city in keeping the costs manageable is maintaining a good credit score.

The score assigned by rating agencies will determine how low of an interest rate Quincy can get on the debt market. One thing agencies will consider is how much money the city has in reserve.

Three years ago, Quincy had $16.8 million in its reserve accounts. Last year, it had $6.3 million, after spending to close annual budget gaps.

Cynthia McNerney, the city’s bond adviser, warned the city council during a recent meeting that this trend could affect the city’s ability to support the high school debt load.

“If you looked at the last five years, from a fund balance position, the city has gone down significantly,” McNerney told the council. “The city needs to take an aggressive, proactive approach toward building up its reserve position if it wants to protect its interest as it goes forward and tries to do everything that it wants to do.”

For now, the city appears to be in good shape. Last year, the rating service Moody’s issued Quincy an “Aa3” credit rating, which the service defines as “high-quality.”

The rating is the highest Quincy has had in at least 20 years, according to data compiled by the state Department of Revenue.

The city was briefly rated a step higher last year, but that was attributed to an industrywide shift in how the ratings are calibrated, Puleo said.